Spike in landlords exiting rental market as fees ban enforced

New stats show letting agents reported a rise in the number of landlords selling up in April.

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With the Tenant Fees act enforced from today (June 1), the latest ARLA Propertymark PRS report has April as the month the highest number of landlords sold their buy-to-let (BTL) properties since May last year.

This, as the supply of rental properties and demand from prospective renters decreased.

Letting agents reported a rise in the number of landlords selling up over April as the number of tenants experiencing rent increases rose and the number of tenants negotiating rent reductions fell.

The number of tenants experiencing rent rises increased in April, with 33% of agents witnessing landlords increasing them, up from 30% in March.

Year-on-year, this figure is up from 24% cent in April 2017 and 26% in April last year.

The month also saw the number of tenants successfully negotiating rent reductions fell from 2.9% in March to 1.9% – the lowest figure seen since May 2016 when it stood at the same.

Other stats in the report include:

  • The number of properties available to rent dropped marginally to 202 per member branch in April, from 203 in March, which was the highest since records began in 2015.
  • Year-on-year, supply is up 13 per cent, from 179 per branch in April 2018.
  • Demand from prospective tenants also decreased in April, with the number of house hunters registered per branch falling to 64 on average, compared to 67 in March. 

“As predicted, April’s findings have shown an upsurge in the number of landlords selling their buy-to-let properties,” said David Cox, ARLA Propertymark Chief Executive.

“The Tenant Fees Act coupled with the proposed scrapping of Section 21 is forcing landlords to either increase rents or leave the market altogether.

“As supply of rental accommodation falls further, tenants will only be faced with more competition for properties, pushing up rent prices on good-quality, well-managed properties and decreasing tenants’ ability to negotiate rent reductions,” said Cox.

“In order to remain profitable, landlords will increase rents to cover the additional fees they are now faced with and as a result, tenants will continue to feel the burn,” he said.

Gillian Guy, Chief Executive of Citizens Advice, hailed a “momentous day” as the Act came into force.

Citizens Advice has been calling for a fee ban for a decade, and worked with Parliamentarians across the political spectrum to make sure the Bill was as watertight as possible.

“The end of these uncompetitive and unfair letting fees is a real win for renters.

“The new law means families and other renters don’t have to hand over hundreds of pounds every time they move home,” said Guy.

“We look forward to working with the government to further strengthen the hand of renters in a market where they have little bargaining power,” she said.

Citizens Advice helped more than 190,000 people with housing problems in the past 12 months – more than 57,000 of them in the private rented sector.

But property management consultant Daniel Gibson, who runs Newcastle based Daniel Craig Residential, warns the Act could harm more than it helps.

“Letting charges which would normally be split between the tenant and the landlord, now have to be completely paid by the landlord,” said Gibson.

“And that means landlords will be looking at ways to recoup the money which will inevitably come back to the tenants,” he said.

Gibson – whose company has more than 1000 properties on its books across the North East – has already put a plan in place to offset the implications of the Act by finding ways of reducing costs.

But he says other agencies are not being so proactive.

Research carried out by Daniel Craig Residential on agencies in the region has highlighted that the average landlord fee for letting a property has doubled, going from 50% of a month’s rent to 100%.

“Those agencies which have smaller increases in the let fee seem to be compensating by increasing their monthly management fee as well,” said Gibson.

Cox fears that while the fee ban “sounds positive” it won’t save renters money in the long run.

“Tenants will continue to pay the same level as before, but this will be passed onto them through increased rents, rather than upfront costs,” he said.

Research ARLA conducted with Capital Economics revealed the fees ban will increase the average rent for tenants by approximately £103 per year.

“While those who stay in tenancies for less than two and a half years will see savings, those in long-term tenancies, which tend to be lower income families, will suffer.

Based on an average rent increase of £103, those in tenancies for 10 years or more will lose out by £755,” said Cox.

As recently reported by 24housing, soaring rents are widely expected with the scrapping of fees.

A survey conducted by rental expert Just Landlords uncovered limited awareness of the Act’s introduction.

Some 17% of respondents believing that tenancy fees are actually being introduced on June 1st June 2019, as opposed to being ditched.

One in ten thought landlords and letting agents will continue to charge for changes to tenancy agreements, but with the maximum fee chargeable being capped at £50.

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